House sales fell in a majority of markets across Canada in June, suggesting
the real estate sector is cooling just as interest rates are starting to climb
and Ottawa is proposing tougher mortgage rules.

Sales fell in Toronto and most nearby cities throughout Southern Ontario in
June compared with the same month last year, but were also down in an array of
markets outside Ontario, including major markets in British Columbia.

Data from the Canadian Real Estate Association show sales fell in 16 of 26
major markets across the country in June compared with June, 2016, and compared
with May this year. The total number of homes sold nationally fell 6.7 per cent
in June from May – the largest monthly decline since 2010 – while sales were
down 11.4 per cent compared with June last year.

Prices are also dipping in many markets, falling an average of 3.4 per cent
nationally in June compared with May on a seasonally adjusted basis, with home
prices in the Greater Toronto Area falling 5.8 per cent and Greater Vancouver
dropping 3.2 per cent. The Hamilton-Burlington area had the biggest price drop
of any major market in June, falling 9 per cent from May on a seasonally
adjusted basis.

The slowdown is coming as the Bank of Canada moved last week to increase its
key overnight rate for the first time in seven years, raising interest rates to
0.75 per cent from 0.5 per cent. That move came a week after the federal banking
regulator, the Office of the Superintendent of Financial Institutions, announced
a proposal to toughen mortgage qualification rules this fall by requiring
lenders to ensure home buyers could afford uninsured mortgages even if interest
rates were two percentage points higher than the offered rate.

The policy changes have raised concerns that real estate markets could face a
greater correction if interest rates rise further this fall, especially in
Toronto-region communities that have been slowing rapidly since the Ontario
government introduced a package of reforms in April to cool the housing
market.

CREA chief economist Gregory Klump said
Ontario measures have clearly prompted many home buyers in the GTA “to take a
step back” and assess the market.

“The recent increase in interest rates could reinforce a lack of urgency to
purchase or, alternatively, move some buyers off the sidelines before their
preapproved
mortgage rate expires,” he said in a statement.

Alex Ocsai, a
realtor in the town of Milton west of Toronto, said he anticipates that many
people sitting on the fence will start shopping before interest rates rise
further, which could provide a boost to sales activity this fall.

“I think the threat of rates going up will bring people away from the
sidelines and into the market,” said Mr. Ocsai, who owns Royal LePage Meadowtowne Realty in Milton. “Rates haven’t moved
for a long time, so we think right now people are on the sidelines towards the
end of the summer waiting to see what will happen, and I think the threat of a
rate increase will bring those people out of the woodwork.”

Mr. Ocsai said
sales fell 18 per cent in Milton in June compared with a year earlier as new
listings spiked, which he believes is the result of many investors and
speculators leaving the market.

“We have seen a lot of investors and as much of our share of speculation as
anyone else, and it looks like those people are gone,” he said.

The Greater Toronto Area led the national sales decline in June, with the
number of homes sold falling by 37.7 per cent compared with a year earlier,
while numerous other Ontario cities also posted declines in June. Sales fell
22.7 per cent in Hamilton-Burlington, for example, and 23 per cent in the
Niagara region.

Sales also dropped in British Columbia in June, with Greater Vancouver seeing
12.2 per cent fewer homes sold compared with June last year, while sales fell
13.6 per cent in Victoria and 9.7 per cent in the Fraser Valley region. Regina
saw 32 per cent fewer homes sold in June, while sales fell 11.5 per cent in
Gatineau,
and 15.5 per cent in Newfoundland and Labrador.

Toronto-Dominion Bank economist Diana Petramala said the national housing market is in
its third month of what is expected to be a “soft landing,” with the downturn
triggered by changes to provincial and federal housing policies. Toronto in
particular has now moved from sellers’ territory to buyers’ territory based on
the ratio of available listings to sales in June, she said.

Ms. Petramala
said last week’s interest rate increase will help “solidify” the downturn, and
mortgage rates will continue to edge higher, predicting there will be three more
interest rate increases by the end of 2018. TD forecasts house prices nationally
will fall by 2.1 per cent in 2018.

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